Survey and study paper on the Hungarian investment environment

The aim of this study is to investigate the reasons for weak investment activity of the Hungarian corporate sector in the last decade, with special regard to the recent years. Chapter 1 gives a general overview of the Hungarian investment performance since 2005 compared to the neighbouring countries, broken down by sectors, asset types and industries. Chapter 2 focuses on the investment activity of the corporate sector by using microeconomic data that provide the possibility to have a more detailed picture about the share of firms of different size and of different ownership. Chapter 3 tries to identify the relation between national competitiveness indices and private investment performance by using the institutional indicators of the World Economic Forum. Chapter 4 evaluates the results of the survey that was conducted in the framework of this work among 400 firms representing all industries in Hungary. Respondent companies identified the main bottlenecks to investment incentives in four fields: institutional barriers, access to labour, access to capital and knowledge and technology. Chapter 5 processes the result of deep interviews made with 40 managers from different industries along the same structure of thematic blocks that were surveyed by the questionnaires.

The study was prepared for the European Commission Representation in Hungary (No. 22/2016, Tender No.: 18/07/29016).

	2023 Fact	2024 Forecast	2025 Forecast
GDP	-0.9%	0.5%	2.4%
Gross Fixed Capital Formation	-7.4%	-12.0%	2.0%
Industrial Production	-5.5%	-3.5%	2.5%
Gross Salaries	14.2%	13.4%	8.0%
Unemployment Rate*	4.1%	4.6%	4.4%
Current+Capital Account**	1.2%	3.0%	2.3%
General Government**	-6.7%	-5.0%	-4.5 %
Consumer Price Index*	17.6%	3.7%	4.3%
MNB Base Rate***	10.75%	6.5%	6.0%
10-Year Yield***	5.86%	6.55%	6.0%

*annual average **in % of GDP ***at year-end

03.12.2024. GDP slides in Q3 amid plummeting investments, expanding consumption and a negative turn in net exports

The second estimate confirms that the unadjusted GDP was down 0.8% in the third quarter of 2024. Compared to the previous quarter, the GDP contracted by 0.7%.
On the expenditure side, the continued plunge in fixed capital formation was the main drag on growth. At the same time, some acceleration in growth was observed in household consumption and the change in inventories continued to add to growth. Final domestic use increased by 0.3% in Q3. But the growth contribution from net exports turned negative in the third quarter, due to the slowing decrease in import and the virtually unabated dip in export, and this was the decisive factor behind the overall decline in GDP.
On the production side, the services growth could not offset the negative effect of plummeting agricultural output, the deepening of industrial recession, and the shift from construction growth into decline.
In the first three quarters of 2024, GDP grew by a meager 0.6%.

30.10.2024. GDP: shocking growth numbers

According to the first estimate, unadjusted GDP was down 0.8% in the third quarter of 2024, while the seasonally and working-day adjusted volume decreased by 0.7% in annual terms. Compared with the previous quarter, GDP fell by 0.7%, the worst growth outcome in the EU according to the data known so far. In the first three quarters of 2024, the volume of GDP edged up by 0.6%.
On the production side, the combined growth contribution of agriculture, industry and construction was about -2% in the third quarter, according to the CSO, while the ability of the services sector to offset the drag by the primary and secondary sectors was much more limited than expected. A deceleration in services raises the possibility that on the expenditure side, it was not just the continuing fall in investments that weighed on growth but private consumption also failed to gain additional momentum in the third quarter – it could even weaken instead, despite the strong real wage growth, possibly due to the contradictory trends on the labor market.

03.09.2024. GDP: amid consumption expanding further, the fall in investments accelerated in Q2

The second estimate confirms that the unadjusted GDP was up 1.5% in the second quarter of 2024, while the seasonally and calendar-adjusted GDP volume climbed 1.3%. Compared to the previous quarter, by contrast, the GDP contracted by 0.2%.
On the expenditure side, the growth was still mainly supported by private consumption, which grew at a slightly accelerated rate of 4%. Fixed capital formation, on the other hand, fell by more than 15%, up from 7% in Q1. Nevertheless, overall final domestic use was up 0.7%, following six quarters of continuous decline, due to a surge in inventories. Despite this modest growth, import continued to fall, even if at a much slower pace. Thus the positive growth contribution of net exports weakened considerably in Q2.
On the production side, economic growth was still mostly driven by services. Industrial outputis still on a decrease and agricultural output started to contract as well.
On the expenditure side, the change in inventories will probably support growth, alongside consumption, but the growth contribution of net exports is likely to become negative in the second half of 2024.